The Asia-Pacific markets intervened as investor sentiment remained fragile

In our view, the risk of a recession in 2023 cannot be ignored.

Kerry Craig

Global Marketing Strategist, JP Morgan Asset Management

Japanese Nikkei 225 rose 0.4% on the day to 26,420.20 while Topix was up 0.64% to 1,867.81.

The shares of Fast Retailing rose 1.44%, while the robot manufacturer Fanuc saw its share rise 0.47%. Trade data released in the morning showed that Japan had a trade deficit after falling in the yen drove more imports.

In Australia, the S & P / ASX 200 closed 0.15% lower at 6,591.10.

Australia’s unemployment rate remained stable at 3.9%, another signal that Australia’s Reserve Bank, like the Fed and many other central banks, will stay the course to raise interest rates again. Unemployment has now been at 3.9% for three months in a row, but may fall to 3.5% by the end of the year, said Ben Udy from Capital Economics.

In South Korea, the Kospi index rose 0.16%, ending the trading day at 2,451.41.

MSCI’s broadest index for Asia-Pacific equities outside Japan fell 0.91%.

Futures contracts for the Dow Jones Industrial Average, S&P 500 and Nasdaq-100 also traded in negative territory during the afternoon during Asian trading hours on Thursday.

Thursday’s move follows a wave of markets earlier this week following the first news of a strong move from the Fed and concerns about more Covid-related restrictions in mainland China.

Fed interest rate increase

After rising interest rates in the US, Wall Street was volatile, but market indices rose to session highs after the Federal Open Market Committee raised its benchmark fund to a range of 1.5% -1.75% – the highest since just before the Covid crisis. the pandemic began in March 2020.

Fed Chairman Jerome Powell also said during his afternoon press conference that “either a 50 basis point increase or a 75 basis point increase seems most likely at our next meeting.”

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The Dow Jones Industrial Average hit a five-day losing streak, jumping 303.70 points, or 1%, to close at 30,668.53. The S&P 500 rose 1.46% to 3,789.99 while the Nasdaq Composite rose 2.5% to end the day at 11,099.15.

The Fed said in a statement that it is committed to reducing inflation – currently at a high of 8.6 percent – to 2%. It also said it would continue to reduce its holdings of government securities and corporate debt and mortgage loans.

Kevin O’Leary, chairman of the board of O’Shares ETFs, says the aggressive 75 basis point rise in interest rates is a signal that the Fed has inflation “bull by the horns” now.

An increase of 1% would be better, but so far all indications are that the Fed “lasso” inflation, he added.

It is crucial that although the Fed has not flagged a new 75 basis point rate hike for the July meeting, it has reaffirmed its commitment to return inflation back to the 2% target, and this meant that the Fed may be willing to sacrifice the economy for To achieve this, JP Morgan Asset Management Global Market Strategist Kerry Craig says.

“In our view, the risk of a 2023 recession cannot be ignored,” Craig said.

Clifford Bennett, chief economist at ACY Securities, said a recession was imminent as the Fed signaled its intention to curb inflation and “ignored the fact that this would lead to further economic pain”.

Currency and oil

The US dollar index, which follows the dollar against a basket of its peers, was 105,261 – above a previous low of 104,707.

The Japanese yen traded at 133.74 per dollar, still stronger compared to earlier in the week when it was at levels above 135 against the dollar. The Australian dollar was at $ 0.6977, retreating from an earlier high of $ 0.7035.

Oil prices were higher in the afternoon during the Asian trading season, with international benchmark futures for Brent oil up 0.47% to $ 119.07 a barrel. US crude oil futures also rose 0.51% to $ 115.90 a barrel.